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Amahl S. Azwar

The Jakarta Post

Publication Date : 18-02-2013

The Indonesian government says it is preparing a regulation to issue more incentives for oil and gas companies amid dwindling production and slow-moving exploration.

Energy and Mineral Resources Minister Jero Wacik said that the incentives would be given to oil and gas contractors to increase exploration of rare discoveries of hydrocarbon reserves made over the last decade.

“We have to boost exploration to ensure that generations in the next five or 10 years will gain the benefits,” the minister said here over the weekend.

Of 750 oil and gas exploration wells drilled between 2002 and 2012, 328, or 43 per cent, were from “dry holes”, which led to losses of US$1.31 billion and prompted the firms to return their concessions to the government, according to upstream oil and gas regulatory special task force SKKMigas.

Based on the 2001 Oil and Gas Law, the firms will be eligible to receive incentives from the government under cost-recovery schemes once they have discovered profit-making hydrocarbon reserves in their exploration areas.

To ensure that oil and gas companies continue exploration in Indonesia, minister said that the firms needed more incentives, including breaks on value-added taxes as well as on land and building taxes.

Jero previously said that the government would offer incentives on import duties as well as an exemption from income taxes on imported goods.

Separately, the ministry’s newly appointed oil and gas director general, Edy Hermantoro, said that the incentive package would detailed in a new regulation to be issued by the Finance Ministry’s tax office.

“Our ministry hopes that the new scheme can be implemented this year. However, we are still waiting for the Finance Ministry to give the call,” Edy said.

SKKMigas risk management and tax chief Bambang Yuwono said that the planned incentive packages would allow oil and gas contractors who were still exploring to pay a maximum of 100 billion rupiah (US$10.3 million) in land and building taxes each year.

The figure, he said, would be much less than the 200 billion rupiah in land and building taxes that contractors were currently required to pay on their exploration areas.

On the low potential for local oil wells, Indonesia Petroleum Association (IPA) chairman Lukman Mahfoedz said that a 50 per cent success ratio for exploration would still be acceptable, claiming that some countries had reported success rates of less than 30 per cent.

However, Lukman said that the government still needed to boost exploration to ensure future production.

“On top of that, land acquisition and other problems relating to the obtaining business licenses in the regions has continued to hinder exploration. They need to understand the importance of increasing their activities now,” he said.

Indonesia quit the Organisation of the Petroleum Exporting Countries (OPEC) in 2008 after becoming a net oil importer, following a decline in its crude oil production due to aging hydrocarbon basins in the country.

SKKMigas has predicted that oil production by the end of this year will hit its lowest level.

Oil production has hovered around 830,000 barrels per day (bpd) in the past years.

In the early 2000s, Southeast Asia’s largest economy still produce more than 1 million bpd of crude oil.

*US$1=9,665 rupiah